Rio Tinto (RIO) has confirmed the strength of the global iron ore market (which was confirmed by the record Chinese imports last month of 74.85 million tonnes) by revealing record iron ore production from its huge mines in the Pilbara region of Western Australia.
Chinese imports of iron ore hit records in July and September, while global prices for the ore hovered above $US130 a tonne for the three months, despite high production levels and exports from Australian mines in the quarter.
In its third quarter production report Rio beat market forecasts in iron ore, and revealed that its big copper mine in Utah in the US is being returned to production faster than expected after a huge landslide earlier in the year.
As a result of the upbeat production report, Rio shares rose 2.5% to $63.20 on the ASX yesterday, leaving its shares still down more than 4% in 2013.
RIO YTD – Copper, iron ore, coal output rising after strong third quarter
Judging by yesterday’s report, everything seems to be going right for Rio at the moment, especially in its key commodities, iron ore and copper.
Iron ore generates just under 80% of Rio’s earnings and it clearly dominates the company’s operations and attention.
Rio said it produced 64.3 million tonnes (Rio Tinto share 51.0 million tonnes) which "set a new quarter record, driven by period on period productivity improvements and commissioning of the Hope Downs 4 mine".
That resulted in production for the nine months to September of 184.1 million tonnes (Rio Tinto share 146.8 million tonnes), 4% higher than the first nine months of 2012.
Rio said third quarter sales totalled 64.3 million tonnes (100% basis), setting a new sales record and were 5% higher than the same period in 2012. Year to date sales of 175.4 million tonnes (100% basis) were 3% higher than the corresponding period last year, Rio said.
"Approximately 30 per cent of sales in the third quarter of 2013 were priced with reference to the prior quarter’s average index lagged by one month. The remainder was sold either on the current quarter average, current month average or on the spot market. Prices are adjusted for product characteristics and iron and moisture content," Rio said.
The company said the Pilbara expansion projects "are on track, with the 290 Mt/a project being delivered ahead of the original schedule and $400 million under budget. First shipment occurred in late August, four months ahead of schedule, and ramp up to nameplate capacity will continue through to the end of the first half of 2014.
"Expansion of the port, rail and power infrastructure to 360 Mt/a is currently underway. A number of options for mine capacity growth are under evaluation, including incremental tonnes from low-cost productivity improvements, expansion of existing mines and the potential development of new mines."
Rio’s board is expected to decide next month on the timing of this final leg of its ambitious expansion plan. This could cost an estimated $US5 billion, which would generate a lot of opposition from investors who want the company to continue cutting costs and returning cash, if possible.
CEO Sam Walsh said in the statement, “We achieved strong production results in the third quarter, with copper volumes up as Oyu Tolgoi ramps up to full capacity and Kennecott continues to recover ahead of expectations. Productivity improvements in our Australian operations led to record quarterly thermal coal production.
"In iron ore, we achieved record production and shipments in Western Australia following the official opening of our landmark Pilbara 290 port and rail expansion, four months ahead of its original schedule and $400 million under budget.
"We maintained good progress against our strategic priorities to improve the performance of our businesses, strengthen the balance sheet and deliver our approved growth projects. We are also making further important gains in productivity across our operations and continue to drive costs out of the business.”
The huge Oyu Tolgoi mine in Mongolia is starting to have an impact, with the concentrator processing close to 100,000 tonnes of copper a day.
But an impasse over selling the Oyu Tolgoi product to Chinese buyers remains unsolved, with customers unable to collect their product from a warehouse in China.
Rio said good progress was being made in resolving the issue.
A separate issue with the Mongolian government on the huge underground phase of the mine is in the process of being negotiated and could be resolved by the end of this year. Meetings have been held in the past month in London.
"2013 expectations for mined copper at Kennecott Utah Copper have been upgraded to 185,000 tonnes. The new heavy vehicle access road is expected to be operational in the next few weeks.
"First hot metal was produced at the AP60 plant in Quebec. Once fully commissioned, the 60,000 tonne per year plant will produce 40 per cent more aluminium per cell than the previous generation of AP technology.
"Production of semi-soft and thermal coal improved following the completion of recent brownfield mine expansions and substantial productivity gains through operational improvements from load and haul fleets."
The $US2 billion expansion of the Kestrel mine in Queensland was opened yesterday. It will boost hard coking coal output from the mine to around 6 million tonnes a year and extend the life of the mine by 20 years, the company said in a separate statement.
The company said it was on track to exceed its $750 million exploration and evaluation spend reduction target for 2013, "having achieved $729 million in lower exploration and evaluation spend during the nine months to September compared to the same period in 2012".
Mined copper rose by 23% to 162,300 tonnes in the quarter and increased by 19% to 458,700 tonnes in the nine-month period as the Oyu Tolgoi mine ramped up, production from Escondida grew and the Kennecott mine at Bingham Canyon in Utah continued to recover faster than forecast.
Rio upgraded its total copper production forecast for 2013 to 590,000 tonnes, from 565,000. Bingham Canyon will now produce the extra tonnes.
Aluminium output was up 3% to 878,000 tonnes in the quarter and rose 5% to 2.7 million tonnes in the nine-month period.
Hard coking coal production fell 6% to 2.3 million tonnes in the quarter and 5% to 5.8 million tonnes in the nine-month period, because of a wall failure at the Hail Creek mine in July. The higher oputput from Kestrel will start kicking in this quarter.
Output of semi-soft and thermal coal jumped 14% to 7.1 million tonnes in the quarter and 21% to 20.3 million tonnes in the nine-month period, thanks to improved productivity in the Hunter Valley and rising production from the new Clermont operation in Queensland.
